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We have adjusted our estimates to reflect lowered organic volume and EBITDA growth forecasts in H225e (primarily driven by South and Middle Americas). Reflecting our EPS revisions we revise our target price to EUR68 (from EUR71); ADR USD79 (from USD81). We do not consider the changes to be material; our rating is unchanged.
Anheuser-Busch InBev SA/NV AB INBEV
What happened? This afternoon we attended a virtual sell-side analyst meeting hosted by ABInBev (CEO, CFO and IR team). We summarise the topics discussed below: BNPP Exane View . Busch Light: brand has been in growth for several quarters and several years. It is a big portion of the value segment, but it also sources a lot from light beers where ABI under-indexes. The growth is coming from the corn belt and expanding out from there. . Brazil: the order of negative impacts in Q2 was 1) weather; 2) relative pricing and 3) consumer sentiment in this order. The weather was extreme (can be seen in the Coke bottler numbers) and led to huge swings from week to week which can not be driven by relative pricing or consumer sentiment. There is a mismatch between beer pricing and cumulative COGS / FX but cannot align in straight line. At the end of the quarter saw the market finally correcting prices to reflect cost / FX pressures. . Hemp based intoxicating bevs: the sub-category is small, it is not legal at a federal level and see an increasing number of states pushing back against it in terms of THC levels. At this point, don''t believe this fits the ABI portfolio as it is not federally legal. . Mexico: the difference between Brazil and Mexico in Q2 was Easter benefit is bigger for Mexico and the relative price gap was bigger in Brazil. The weather unfavourable in both markets. There was a c.9% price relatively for the consumer (ABI vs. competition) at the end of Q1 in Brazil. . US beer distribution: at this point, don''t see any big benefit or synergies from having a much bigger spirits portfolio. But there is a very big opportunity for new to the world brands in the RTD spirits space. At last Q, Nutrl and Cutwater combined were +1.9% of the US spirits industry (in measured channels) and continued to be 30%+ of the USD growth in the spirits inc. RTD industry. . Brazil brand strategy: there is no change to the portfolio strategy in Brazil which is...
Summary of Q225 results Most elements of the ABInBev''s Q225 results were broadly in-line with company consensus expectation: Q2 LFL sales grew +3.0% (cons. +3.2%); Q2 LFL EBITDA +6.5% (co. cons. +5.7%) and Q2 USD EBITDA of USD5.3bn was a modest miss (-0.8% below). However, the notable exception was organic volumes which declined -1.9% and were a -160bp miss. By region, the primary course of the volume miss was South America (Q2 vols -4.9% vs. cons. -0.2%) where Brazil Beer volumes declined -9.0%. Q2 EPS at USD0.98 was a +2.8% beat and grew +8.0% YOY (+17.4% at constant FX). News We highlight that Brazil Beer volumes declined by -9.0% in Q225, driven by tough comps, price relativities (vs. competition) leading to underperformance in a soft industry which was also impacted by adverse weather. Earnings We revise our FY25e / FY26e / FY27e EPS estimate by c.+3% / c.-1% / c.-2%. Investment thesis We expect material share buybacks to drive a high-teens mid-term TSR at ABInBev. Rating and target price We maintain our Outperform rating. Our target price moves to EUR71 from EUR64 driven by 6-month roll-forward of our target earnings base. ADR to USD81 from USD76. 15 questions for management What is your view the hemp based intoxicating beverages which appear to be growing in popularity in the US? Is it a product you would ever consider expanding into as part of your beyond beer strategy?
BNPP Exane view ABInBev acknowledged that Q2 volumes were not where they want them to be but continued to strike a confident tone. While we view the c.-11% share price reaction today as very harsh, very harsh reactions to volume misses have been the norm this results season. There was nothing on the call that would lead us to expect a sharp rebound in the shares today. Points of colour below. Please note, due to an IT issue, a section of the QandA write-up is missing below (there was nothing share price sensitive within it). Apologies for this. Highlights: QandA . Volume growth outlook: good to remember we have operations in over 50 countries and it is a great footprint. But this can expose us to volatility short-term. Since covid, volumes have grown +0.5% on average. In Q2 vols were not where ABI wanted to be but delivery on other metrics was very consistent. Overall remain confident on footprint that we have and the footprint and strategy. . EBITDA in better vol context: margin expanded in 4/5 regions in Q2. Don''t provide an outlook but said 2025 looks to be a normal year of cost inflation. If you look at the FX, expect phasing of FX-driven cost inflation on Mexico and Brazil to be from Q2 onwards. The fundamentals drivers of the industry leading margins remain intact. . US: proposed back in 2017 a rebalancing of the portfolio and have since been investing in the brands that we felt had potential. The growth at present is being led by Michelob Ultra and Busch Light. With fewer innovations but more meaningful innovations have seen bigger impact on Q2. The learning from this is consistency and see further acceleration in the beyond beer space. There is much more to do in the US but pleased with the momentum behind the brands at present. . Mexico: results in Mexico in Q2 were good and gained modest share. Last year was great Q for weather and had benefit of government support in the base. See that the economy continues to progress but consumer...
BNPP Exane View Q2 volumes (which appears to be the big focus for the market this earnings season) are materially below consensus (company compiled) expectation (-160bp miss). The volume miss was most driven by South America where Brazil beer vols declined -9.0% (ABI cites adverse weather and underperformance of a soft industry) but volumes were also below cons. expectation across all regions other than North America which itself arguably benefited from some phasing benefit in the US. Overall, with USD EBITDA only a modest (c.-1%) miss and EPS ahead, in a typical results seasons we would call the shares down c.-2 to -3%% but given the recent market reactions to even small Staples vol. misses we expect a meaningful decline this morning. We call down -MSD (could be even more). Headline metrics . LFL: +3.0% (co. cons: +3.2%) . Vol: -1.9% (co. cons: -0.3%) . Rev./HL: +4.9% (co. cons: +3.5%) . Sales: USD15,004m (-1.7% vs. co. cons.) . EBIT: USD4,013m (+1.3% vs. co. cons.) . EBITDA: USD5,301m (-0.8% vs. co. cons.) . LFL EBITDA: +6.5% (co. cons. +5.7%) . EBITDA margin (%): 35.3% (co. cons. 35.0%) . EPS (basic, underlying): USD0.98 (+2.8% vs. co. cons.) Top-line drivers Scanning the top-line drivers by region, we note that while LFL sales for Q2 came in broadly in-line with consensus expectations (+3.0% vs. co. cons. +3.2%), primarily driven by stronger growth in North America (+2.2% vs. co. cons. -1.5%), group Q2 volume growth came below consensus (-1.9% vs. co. cons -0.3%), led mainly by South America (-4.9% vs. co. cons. -0.2%). Q2 volumes also missed in EMEA (+0.9% vs. co. cons +2.7%), Asia Pacific (-6.6% vs. co. cons. -5.4%) and Middle Americas (+1.1% vs. co. cons. +1.7%). Volume in North America were materially (+0.3% vs. co. cons. -3.0%) ahead but appeared to benefit from some phasing in the US. ABI comments on Q2 volume growth of +0.7% outside of China and Brazil. Note: US LFL sales grew +2.1% (cf. Q1 -5.1%) and within this STWs grew +0.2% (Q1...
We have adjusted our estimates primarily to reflect updated FX. We have made modest revisions to our organic operational forecasts. We do not consider the changes to be material; our rating is unchanged.
What happened? We recently caught up with ABInBev ahead of its closed period (it reports Q225 results on 31st July) to get an update on what it has been saying to investors over recent weeks. There is no change to FY25 guidance. BNPP Exane View: Overall, we felt the tone was slightly cautious, especially with respect to Brazil (tough comps, poor weather and pricing ahead of competitors leading to a volume impact) and Mexico (also facing tough comps and a sequentially softer consumer). However, elsewhere the company commented on share gains in Europe following retailer de-listings of a key competitor, as well as easier comps in Peru/Ecuador and some Easter phasing benefit in South Africa (and Mexico). Reflecting on consensus estimates (Bloomberg Q225 LFL sales +4.7% and LFL EBITDA +7.5%), we would not be surprised to see modest negative revisions, led by Middle and South Americas. See below for further colour: Mexico: The company noted that it is facing a relatively tough comp in Mexico in the quarter which last year benefitted from good weather and the phasing of government benefits, although ABInBev did note that Q225 will benefit from the Easter shipment phasing. On the consumer, the company commented that caution from the Mexican consumer has continued which has an impact on demand. Brazil: ABInBev noted that it will be cycling a tough comp. from Q224 (+4%) and also commented on soft weather trends throughout May and June leading to a slightly declining industry in the quarter. Additionally, the company noted that Ambev implemented a price increase at the start of the quarter which the other main competitor had seemingly not yet followed. Asia Pacific: In China, ABI faces a sequentially easier comp. (Q224 LFL sales -15.2% vs. Q1 -2.7%) but underlying trends remain tough. Moreover, Bud APAC noted at the Q125 results that sales-to-wholesalers (STWs) are expected to continue to lag sales-to-retailers (STRs) in Q225, only starting to converge in...
Initiate coverage of ABInBev ADR With this report we initiate coverage of ABInBev ADR, in coordination with our pre-existing coverage of ABInBev. Converting our existing ABInBev target price (EUR64) at the current EUR/USD spot rate, we initiate coverage of ABInBev ADR at Outperform with a target price of USD72 (implying ~19.5x CY25e P/E). Our latest research on ABInBev can be found here: Q125 results and 15 questions for management
Q3 EBITDA is well ahead of expectations, but EPS beats by just 1% Q3 organic volume -3.4% (company-compiled consensus -2.7%) is worse than expected, but organic revenue and EBITDA are both better than expected and at the bottom-line EPS is 1% ahead. North America volumes were -17.1% (consensus -14.3%) as the US STWs were -17.6%. In Europe, volumes fell 1.5% (consensus -2.0%). Q3 organic revenue is +5.0% (consensus +4.7%). Although ABI lost share y-o-y in the US, the US beer industry was estimated to have grown 3.3% in Q3. Q3 organic EBITDA is +4.1% (consensus +0.3%), helped by South America +54.5% (consensus +25.3%) and Middle Americas +14.5% (consensus +11.5%). The North America and EMEA EBITDA performances were both also better than feared. US EBITDA fell 29.3% in Q3 as operating deleverage hit the P&L. A strong performance in Brazil (EBITDA margin +628bps) was attributed to moderating cost inflation and mix, as ABI actually lost a small amount of beer volume share in the quarter. We believe modest top-line and strong margins will characterise most FMCG company performances in 2024 – ABI is seeing this margin benefit a little earlier than other companies, as it was affected by adverse inflation earlier than most. Q3 underlying EPS is $0.86 (consensus $0.85). Outlook unchanged The outlook is unchanged from 4-8% EBITDA growth and revenue growth ahead of EBITDA growth. Consensus currently forecasts EBITDA +6.1% and revenue +8.2%, and the 9M23 EBITDA growth has been +7.3%, so we expect consensus will nudge up slightly, c 1-2% on an underlying basis, although FX could potentially offset that. Management hosts a conference call later today at 1pm GMT. Webcast link here
Volumes as expected, EBITDA & EPS ahead; FY outlook unchanged The Q2 results are not as poor as expected. Organic volume -1.4% in Q2 (company compiled consensus -1.4%) is as expected and organic revenue +7.2% (consensus +6.4%) is comfortably ahead. The key North American organic volume figure was -14.1% (consensus -14.4%), reflecting the Bud Light consumer backlash. Growth in other regions, notably Asia Pacific +9.5%, was able to mostly offset the pressure in North America. Underlying EBITDA in Q2 was +5.0% on an organic basis (consensus +0.4%). Excluding the one-off tax credit in the prior year in Brazil, organic growth would have been broadly flat – but this benefit was known and should have been incorporated in the consensus already, meaning the beat is a real beat. It appears to have been driven by stronger than expected delivery across multiple regions including South America, Middle Americas and EMEA. North America EBITDA was -24.4% in Q2 (consensus -28.8%), with EBITDA in the US specifically -28.2%. Revenue/hl still grew 5.2% in the US during Q2 due to revenue growth management initiatives. Underlying EPS of $0.72 (consensus $0.67) is a 7.5% beat. The FY outlook for EBITDA and revenue growth is unchanged. Net debt/EBITDA rose again to 3.7x (it was 3.5x at December 2022) due to the seasonality of working capital and the phasing of capex investments. Approximately 64% of ABI’s revenue is now generated through its B2B digital platforms and $115m of revenue is generated through its DTC channels. Overall, we consider this to be a better result than had been feared, and the unchanged FY outlook is also positive. Consensus is at the low end of the guided range for FY23, so estimates may nudge up slightly (1-2%) on the back of today’s results.
Very strong Q1 delivers a positive EBITDA surprise, but FY guidance left unchanged Q1 organic volumes are +0.9% (company compiled consensus +1.0%), with organic revenue +13.2% (consensus +9.9%). EBITDA grew 13.6% on an organic basis (consensus +5.6%), coming in significantly ahead of expectations, as margins surprisingly expanded 13bps. This was achieved despite continued COGS pressures (COGS +14% on an underlying basis) and increased investment in sales & marketing. Underlying EPS of $0.65 is 7% ahead of consensus ($0.61). Management have chosen to leave FY23 guidance unchanged (4-8% organic EBITDA growth) despite the significant beat in Q1. The broader macro environment and inflation were reasons cited. Nevertheless, we expect a positive reaction in the shares as consensus moves to the top of the 4-8% range (currently consensus is at +5.6% for FY23). US still weak-ish but other markets are stronger than expected ABI’s expansion into digital platforms continues, with 62% of global revenue now going through its B2B digital platforms across 20 markets, and over $100m of revenue coming from DTC digital channels. The challenged US business continued to lose share, but top line is in growth thanks to ongoing premiumisation trends (revenue +4.0% but STWs -1.6%, STRs -3.0%). US EBITDA was flat y-o-y. In Brazil, where cost inflation is a major headwind, EBITDA was +26.5% (consensus +19.8% for the South America division overall). The premium and super premium brands (mid-thirties volume growth) outpaced the rest of the portfolio (+0.9% for ABI beer volumes overall in Brazil). Europe delivered high single digit EBITDA growth on flat volumes and low teens organic revenue growth. China improved significantly as the market opened, with volumes +7.4%, revenue +11.0% and EBITDA +13.2%. South Africa EBITDA fell by low single digits on cost headwinds. Management will host a conference call for analysts and investors at 2pm BST as usual.
Top-line a slight miss but bottom-line beats by 4% Q4 volumes at -0.6% (company-compiled consensus +2.1%) were weaker than expected, due to North America volumes at -8.3% in the quarter. The US weakness was attributed to poor weather and the phasing of price increases, which affected the entire industry, and we note that even with volumes -8.3% in Q4, EBITDA in the US grew 3.1%. Nevertheless, volumes over the FY (+2.3%) grew in 60% of ABI’s markets. Q4 organic revenue +10.2% (consensus +11.0%) implies price/mix of around 11%. The global brands (Budweiser, Stella Artois and Corona) grew 6.6% in Q4 outside their home markets. Although premiumisation continued to be a strong trend in FY22 (premium brands grew revenue in the low teens over the year), the core/mainstream brands still grew revenue high single digits and outperformed the beer industry in most key markets. Q4 EBITDA grew 7.6% on an organic basis (consensus +7.1%). Commodity costs, transactional FX and SG&A were significant headwinds in the year. FY22 underlying EPS is $3.03 (consensus $2.90), with DPS €0.75 (consensus €0.50). This is the first increase in the dividend since 2019, and reflects confidence in the strengthening balance sheet. Net debt/EBITDA fell to 3.5x (consensus 3.5x). Medium-term outlook reiterated The outlook for FY23 assumes EBITDA growth in-line with the medium-term outlook of 4-8% (consensus +6.9%). We expect to hear more details about the level of inflation assumed in the guidance on the conference call. The long-term growth trends for ABI are unchanged. Innovations generated $5bn in revenue during FY22, and ABI is gaining share of female consumers with line extensions and hard seltzers/RTDs. About 63% of revenue is generated through digital B2B platforms, with GMV growth on these platforms 60%+ y-o-y. Digital DTC revenue grew in the mid-teens y-o-y and now accounts for $1.5bn of the group’s revenue. Overall, FY results are reassuring and we expect US weakness to be temporary.
Solid Q3 figures ABI has raised the lower end of its FY outlook for organic EBITDA growth to 6-8% (previously 4-8%). Revenue is still expected to grow ahead of EBITDA with a “healthy combination” of price and volume. Q3 volumes were +3.7% (consensus +2.2%) and Revenue was +12.1% (consensus +10.2%), so the company beat on both volumes and rev/hl. All regions except North America grew volumes, with EMEA, Asia Pacific and North America all coming in ahead of expectations. EBITDA grew +6.5% (consensus +5.2%), with margin contraction of 183bs to 35.2%. Underlying EPS of $0.84 is 1% ahead of consensus of $0.83 Management hosts a call at 2:00pm BST, as usual.
Modest 2% EBITDA beat Q2 organic revenue +11.3% (consensus +9.5%) is a solid beat. Volumes were +3.4% (consensus +1.9%). North America volumes at -2.7% were better than the -3.8% consensus expected, though ABI is still underperforming the industry there. South America also beat consensus volume expectations with 8.6% growth (consensus +4.0%), while EMEA volumes were slightly weaker than expected. Q2 organic EBITDA growth of 7.2% (consensus +5.6%) is also ahead of expectations, and is a very solid result in light of the significant cost inflation. On a reported basis, EBITDA beat consensus by 2%. South America was the main driver of this beat, with organic EBITDA +37.9% (consensus +14.0%). Out of home consumption continues to recover in the Brazilian market, and ABI is outperforming the market there. The FY growth outlook is unchanged, with EBITDA expected to grow 4-8% (consensus +6.5%). Underlying EPS $0.73 (consensus $0.79) is an 8% miss, but typically the market will focus on the EBITDA line, not on EPS. Debt paydown continues Net debt/EBITDA fell to 3.86x, from 3.96x at the end of 2021. Gross debt fell by $5.5bn to $75.9bn. Management hosts a conference call at 2:00pm BST.
A very solid Q1 beat ABI has reported a solid Q1 result this morning. Organic volumes were +2.8% (consensus +0.4%), while organic revenue was +11.1% (consensus +7.6%). Revenue/hl grew 7.8% due to net revenue management, pricing and continued premiumisation trends. The above core portfolio grew revenue by 15%, but importantly the core mainstream portfolio also grew revenue by high single digits. Volumes grew in over 2/3 of ABI markets. Within the company’s key markets, only the US and China declined, the latter due to the COVID restrictions implemented during the period. Profits were likewise better than expected, with organic EBITDA +7.4% (consensus +4.6%). ABI takes a $1.1bn exceptional impairment charge on the exit from Russia. At EPS level, normalized EPS of $0.67 was 6% ahead of the consensus. The outlook is unchanged, with FY EBITDA to grow organically by 4-8% (consensus +5.9%) and revenue to grow ahead of this rate. We expect consensus will nudge up slightly on these results. We note ABI redeemed $3.1bn of its bonds in Q1. Growth drivers continue to deliver Digital continues to be a major growth driver for the company. Its BEES B2B digital system is now in 17 markets and has 2.7m monthly active users. BEES saw over 23m orders placed in Q1 with a total GMV of $6.5bn. The group’s global brands grew revenue by 6.0% outside their home markets – unusually they were below the group average, but this was due entirely to Budweiser which was heavily impacted by the COVID restrictions in China, its largest market outside the US. Low and no alcohol beers also remain in demand. The Beyond Beer segment delivered $350m in revenue in Q1. Mexico was very strong (revenue grew in the low teens) despite unfavourable Easter phasing. ABI has completed the seventh OXXO rollout, which expanded its presence to 3,600 additional stores. It also opened 200 Modelorama stores. Brazil revenue grew 16.9%, while Colombia grew revenue nearly 20%.
Strong finish to the year, slightly ahead of consensus Volumes were +3.6% in Q4 on an organic basis (consensus +3.1%). Price/mix of 8.1% (consensus +5.4%) in Q4 led to organic revenue +12.1% (consensus +8.5%). FY21 EBITDA +11.8% (consensus +11.4%) was towards the upper end of the guidance range of 10-12%, with Q4 organic EBITDA growth of +5.0% (consensus +4.0%). The dividend was held again at €0.50/sh, and net debt/EBITDA stood just under 4x at 3.96x at the end of 2021. Innovation & premiumisation continue The Global Brands grew revenue by 23.5% in Q4, and 22.9% in FY21, outside of their more mature home markets. Premium priced brands are now 1/3 of total revenue, up 200bps y-o-y. Innovations delivered more than $5bn in revenue over FY21, representing c. 10% of group revenue. The Beyond Beer business (ciders, RTDs etc.) grew by over 20% in FY21 and is now $1.6bn of revenue. The US seltzer portfolio grew 1.7x the industry growth rate. Key market performance in Q4: US revenue +2.6% and EBITDA -1.2% (higher SG&A), Brazil revenue +5.4% and EBITDA 20.5% (FX & commodities), Mexico revenue +HSD and EBITDA +HSD, China revenue c. +20% and EBITDA +30.1%, South Africa revenue +mid-teens and EBITDA +high-teens. Outlook in-line with consensus Management expects 2022 EBITDA to grow by 4-8%, with revenue growth ahead of this rate and to be delivered through a “healthy combination of volume and price”. Consensus currently forecasts +6.6% organic EBITDA growth and +7.5% organic revenue growth in 2022, so this outlook is in-line with expectations. There is a conference call at 2pm GMT / 9am ET.
A refreshed strategy Yesterday, ABI hosted an Investor Seminar where it unveiled a new corporate purpose “To a future with more cheers.” This message incorporates a focus on growing the company’s addressable market, with a greater focus on organic growth rather than the M&A fuelled growth of the past. This market growth will be achieved by continuing its expansion into Beyond Beer categories (e.g. hard seltzers, RTDs), upselling customers through its B2B digital platforms, exploring new avenues for growth such as biotech on the back of its massive fermentation capabilities and increasing innovation. While new CEO Michel Doukeris was very respectful of the company’s heritage and track record, he acknowledged that the company had sometimes taken its eye off the ball with regards to innovation during its multi-decade market consolidation phase. Management provided medium-term guidance for the first time, though it was at EBITDA level only, which left some unanswered questions about the rate of top-line growth the company can deliver – a key metric for most Consumer Goods companies. The new target of 4-8% organic EBITDA growth is essentially in-line with our existing forecasts (the average of our FY22E-FY30E is +6.8%). Nevertheless, the commitment to a medium-term outlook reveals a level of transparency that the market clearly welcomed. Revenue is already 8% above the pre-crisis level at the 9M stage (vs the beer industry at 1.4% above the pre-crisis level) – and management intends to drive the category growth going forward. The main focus of the day was on the company’s digital capabilities. The BEES B2B platform is in 16 countries and is already doing $25bn in annualised GMV. Management believes it will prove to be an industry gold standard B2B platform, and noted that it has 1,200 engineers and developers supporting it. More than 80% of customers on the BEES platform use the suggested orders that the company creates. ABI uses the platform to offer loyalty programmes, promote brands and even in some cases extend credit. In markets where BEES is used, ABI reports incrementally higher volumes and a wider assortment. ABI also announced a target to achieve net zero across its entire value chain by 2040, and will be expanding the number of managers whose remuneration will be linked to the delivery of ESG targets.
Broad-based top-line and EBITDA beats across the regions, despite headwinds Q3 results are stronger than expected, with organic volumes +3.4% (consensus -0.1%), organic revenue +7.9% (consensus +4.2%) and organic EBITDA +3.0% (consensus -2.3%). This is a very impressive result in light of the ongoing supply chain issues and COVID-19 related restrictions in some markets. The mainstream portfolio of brands grew revenue 4.0%, while the premium portfolio grew revenue 11.3%. The positive surprises were widespread across the group. All regions were ahead of expectations except for Asia Pacific, where both China and South Korea suffered from further COVID-19 restrictions. Management raised the bottom-end of FY guidance to 10-12% organic EBITDA growth (previously 8-12%). The restricted shares issued during the SAB deal are now unrestricted as of 11th October. Thus far there have been conversion requests for about 42.3m shares, out of the 326m total restricted shares issued. Input costs and mark to market headwinds curb EPS growth EBITDA margins fell 174bps yoy, as input costs, FX and supply chain costs were significant drags. The mark to market on hedges linked to the share based payment programmes was a hit of $683m to the P&L in Q3. The company’s ‘normalised EPS’ of $0.50 was 11% ahead of consensus of $0.45. The ‘underlying EPS’ of $0.85 was 4% ahead of consensus of $0.82 Management hosts a call later this afternoon, as is their usual practice. Growth areas remain strong ABI’s hard seltzer portfolio is growing at 1.8x the rate of the segment in the US, and continues to expand globally. The Beyond Beer portfolio in total generated $1.2bn of the group’s revenue. The BEES digital B2B platform handled over $5.5bn in GMV during Q3, and in South Africa it accounts for 80% of revenue.
Despite a 4% EPS miss, the demand trends are reassuring Q2 volumes +20.8% (consensus 19.4%) reflect a strong rebound against soft comps. Q2 rev/hl of +5.8% (consensus +4.7%) is also very impressive. While revenue growth was better than expected, organic EBITDA +31.0% (consensus +35.3%) was slightly below expectations, held back by transactional FX and commodity costs. SG&A also rose as variable compensation accruals started to kick in as a result of the better top-line performance. US STWs were +2.9% (consensus North America volumes +4.7%), and US EBITDA grew just 1.3% (consensus North America EBITDA +6.8%). Given the weight of North America in the group, this appears to be the main area of disappointment, along with Q2 misses in EMEA and South America. Asia Pacific and Middle Americas outperformed vs expectations. Revenue growth of the Global Brands (Budweiser, Stella Artois and Corona) +19.3% outside their home markets demonstrates that these brands continue to appeal to consumers around the world. ‘Underlying EPS’ of $0.75 was 4% light of consensus and ‘normalized EPS’ missed by the same amount. Net debt/EBITDA was 4.4x at the end of June, down from 4.8x at the start of the year. The FY outlook is unchanged, with organic EBITDA 8-12% and organic revenue to grow ahead of this rate. Finance, tax and capex guidance are all unchanged as well. Management hosts a call at 2pm BST; this will be the new CEO’s first set of results. Reasons we like ABI ABI continues to succeed at stretching its portfolio and capabilities beyond Beer. These new areas grew revenue by 45% in Q2 and are delivering an average gross profit per hl that is 20% higher than the base Beer business. The B2B digital platform BEES grew revenue over 50% sequentially since Q1 and is now capturing $4.5bn of GMV. In the 7 initial focus markets for the BEES rollout, 60-90% of addressable revenue has already switched to digital.
North America CEO appointed to succeed Michel Doukeris ABI has announced that Brendan Whitworth, former US Chief Sales Officer, will succeed Michel Doukeris (the newly appointed CEO of ABI) as head of the North America zone, ABI’s largest division on 1st July. Whitworth has a strong track record in the US despite the sometimes challenging portfolio of brands there. Over 8 years in the role, he helped to drive strong market share gains at Michelob Ultra, a major success story for ABI in the US. Under Whitworth’s watch, US sales growth also improved 2.8% over 2017-2020. He also strengthened ABI’s relationships with wholesalers and retailers, and helped ABI expand into beverage adjacencies like canned wine and hard seltzers. Whitworth also presented during ABI’s deep dive investor day on the US in May 2019. This appointment removes uncertainty surrounding a key market for ABI, and one which often tends to drive sentiment on the shares. We believe Whitworth is capable of driving the North America business forward and are pleased with the appointment. Ezgi Barcenas appointed to Chief Sustainability Officer ABI has also announced the appointment of Ezgi Barcenas, Global Vice President of Sustainability, to the role of Chief Sustainability Officer. The current Chief Sustainability and Procurement Officer, Tony Milikin, will step down on 1st August. The new Chief Sustainability Officer will also join the Senior Leadership team, underscoring ABI’s commitment to sustainability. We note Barcenas has already interacted with the investor community in webinars and presentations. Plenty of fresh perspectives at the top In recent months ABI has announced changes to the CEO, Head of IR, Head of North America, and Chief Sustainability Officer roles. This follows the changes in CFO, Chief People Officer and Chief Strategy & Technology roles during 2020. While ABI has always embraced change and innovation in its category, we sense more of a focus on this now than in years past; given the competitive nature of Beer and the share price underperformance, we view this as a positive development.
Q1 beat across all regions; CEO to step down Q1 results are overshadowed today by the announcement that the CEO, Carlos Brito, will be stepping down on 1st July 2021 and will be replaced by the current head of North America, Michel Doukeris. The Q1 results are strong on the top-line, but closer to in-line at EPS. Organic volumes +13.3% were well ahead of expectations (consensus +7.3%), and organic revenues +17.2% were also better than expected (consensus +8.7%). All regions beat expectations. Profitability was hampered by various cost headwinds, as flagged earlier in the year, with the EBITDA margin -91bps y-o-y. Nevertheless, Q1 organic EBITDA +14.2% was still much better than expected (consensus +6.6%), helped by brand mix and cost discipline. Normalized net profit is 3.5% ahead of consensus; underlying net profit (excludes some additional items) is a very slight 2% miss. Management hosts a conference call for investors and analysts at 2pm BST. Regional performance North America, the group’s largest region, faced tough pantry-loading comps but returned to good growth in April. Organic volumes +2.9% (consensus -0.5%), organic revenue +5.0% (consensus +1.5%) and EBITDA were all better than expected. Middle Americas delivered solid top-line growth with volumes +10.4% (consensus +4.0%) and revenue +16.0% (consensus +7.0%), with better EBITDA progression +10.6% (consensus +3.5%). Colombia, a large market for ABI, grew top and bottom-line by more than 20% on an organic basis. Over 50% of revenue in Mexico is now ordered through the digital B2B platform. South America (volumes +12.1%) beat consensus +8.0%. EBITDA growth +23.3% was much better than feared (consensus +2.7%). The strong performance despite the lack of carnival this year is impressive. The global brands grew by almost 20%. EMEA continued to be impacted by on-trade restrictions across the region as well as alcohol bans in S. Africa, and was the only region in volume decline during Q1 (Europe fell low single digits & S. Africa was in slight decline). Organic revenue was 0.4% (consensus -7.5%). The region was the biggest drag on group EBITDA growth, delivering -14.0% (consensus -17.4%). Asia Pacific was the fastest growing region during Q1, given the easy comp in the year ago period. Organic revenue was +61.7% (consensus +51.2%) and organic EBITDA was 166.6% (consensus +137.4%). China is now back above the pre-crisis revenue level.
Q1 in-line with lowered expectations Q1 organic volumes -9.3% (consensus -7.9%) are a little worse than expected, but given the various moving parts in the quarter we would call this broadly in-line. Organic sales -5.8% (consensus -5.4%) were helped by solid rev/hl growth of 3.9%. Organic EBITDA -13.7% (consensus -14.7%) and underlying EPS of $0.51 (consensus $0.52) were essentially in-line with expectations as well. “Normalized” EPS, which includes the impact of mark to market on hedges linked to the share price, was -$0.42. Management will host a call for analysts at 2pm UK time, as usual. Outlook still murky The outlook remains uncertain and management has not provided any further update on FY expectations. Volumes in April have fallen by around 32% and management expects Q2 will be significantly worse than Q1, as more markets have been under restrictions. In China, where the consumer has already come out of lockdown, volumes went from -46.5% in Q1 to 17% in April. We think the market will be curious about the magnitude of potential operating de-leverage that is likely to occur in Q2 and beyond. ABI is currently focused on efforts to support the off-trade channel, especially with regards to e-commerce, and is also creating initiatives to support their on-trade customers once they re-open. The shift to off-trade is primarily benefiting established brands and larger pack sizes. In Brazil, ABI is leveraging its DTC platform to deliver cold beers to consumers in under 60 minutes. Balance sheet and costs ABI has already reduced its final dividend by 50%. The company recently raised $11bn of bonds. The $11bn sale of its Australian subsidiary to Asahi is expected to close soon. The senior executives have volunteered to reduce their base salaries by 20% over the balance of 2020. There is a spending freeze on travel and all company events have been cancelled. Commercial contracts are being re-negotiated where possible.
Final dividend halved ABI announced that it will cut its final dividend to €0.50/share from €1.00/share, in light of the ongoing disruption to its business from widespread social distancing initiatives that have shut the on-trade channel in many of the company’s markets. This disruption caused us to cut our FY20E EBITDA by another 8% last week, our second downgrade this year, with possible further downgrades to come if social distancing is extended beyond June. The AGM has been postponed from 29th April to 3rd June. Balance sheet preservation We consider the cut to the final dividend sensible, given the company’s unusually high leverage following the SAB deal; net debt/EBITDA was 4.5x at the end of 2019, and we forecast this to rise slightly to 4.6x at the end of 2020E due to COVID-19. In the wake of the SAB deal, ABI cut its FY dividend by 50% (to €1.80 from €3.60), and this move will take the FY dividend down to €1.30 from €1.80 (-28% y-o-y). Other companies with high exposure to the on-trade may implement their own dividend cuts and/or suspensions in due course. Over time, we expect ABI will raise the dividend back to its pre-SAB level of €3.60, and grow it from that level. Unfortunately, COVID-19 has probably pushed out the timeline for this by at least a year.
Quantifying the impact: Most companies have not yet quantified the impact of COVID-19 on FY expectations. Pernod and Remy are the notable exceptions – both expect a profit decline of at least 20%, the most dramatic annual decline these companies have ever experienced. We believe Spirits will be the most negatively affected category of Consumer Goods; other categories are likely to see less substantial downgrades. See the table overleaf for a summary of the risks to numbers across our coverage, assuming shutdowns last for 4 months of the year or a more extreme 6 months. Minimal exposure: Some companies will be unaffected by these lockdowns. Tobacco is still classed as an essential item available for purchase in nearly all markets; both BAT and Imperial have recently re-confirmed FY20 guidance. Reckitt has no meaningful exposure to the out of home & on-trade channels. It is possible these 3 companies may see an uplift in FY20 sales and EBIT as consumers stockpile. Further updates are due from the sector in the coming weeks. The Q1 reports have already begun, with Beiersdorf announcing last week (Q1 Consumer LFL was -3.3%); the company did not quantify the COVID-19 impact for the FY, however. Towards the end of April, companies may have a better idea of the potential impact on their businesses. Balance sheet strength: We do not foresee any significant balance sheet issues in our coverage universe – ABI perhaps being the one possible exception on over 4x net debt/EBITDA at the end of 2019 with significant exposure to channels that have shut down (but even there we think the company will find solutions). None of our covered companies have cut their dividends yet. We note that ABI, Pernod, Imperial and C&C have all successfully raised additional funding in recent days. Deals are still happening, too, remarkably; these include Nestlé for Lily’s Kitchen, Unilever for the GSK consumer healthcare & nutrition brands and L’Oréal for the Clarins fragrance division. We have no doubt that the companies on our coverage list will all still be operating in a year’s time, the question is how bad does it get before it gets better? Our published forecasts and target prices are under review for a number of the stocks in our coverage.
ABI ABI BATS CCR CCH DGE IMB RI RI RECKIT RKT TATE ULVR
Social distancing to significantly impact beer ABI has withdrawn its FY20 guidance in light of the recent social distancing measures taken to slow the spread of coronavirus, which are impacting its business. Globally, the on-trade represents 55-60% of beer category sales revenue, and not all of the lost sales in the on-trade will be replaced in the off-trade; we had flagged the risk to Alcohol companies in our recent note ‘Reality check’ [here]. Many other Consumer companies have already withdrawn their FY guidance. We note another Alcohol company, Pernod, has just this morning revised its FY20 guidance on organic EBIT development to -20% (from +2-4% as of mid-February). In the case of ABI, which has already fallen 42% year to date, 13% worse than the Stoxx 600 European index, we believe the risk has been priced in quicker than it has been for Pernod. Australian deal still going ahead ABI and Asahi are working with the Australian Competition and Consumer Commission and Foreign Investment Review Board regarding the sale of ABI’s Australian business for AUD16bn. Despite the global disruption from coronavirus, ABI expects the deal could still close in Q2 of 2020. There had been some concern from investors that the deal could fall through, so this statement is reassuring.
Clear and sensible succession plan ABI has announced that its longstanding and well respected CFO, Felipe Dutra, will be stepping down effective 29th April 2020. Dutra has been with the company for 30 years and helped to create the current business through multiple mergers and acquisitions (Ambev/InBev, Anheuser-Busch, Grupo Modelo and SAB Miller). Dutra will remain with the company to assist during the transition period. He has already worked closely with his successor, Fernando Tennenbaum, for many years. We think clarity about management is a positive for the stock, especially with a high-quality appointment to CFO. Incoming CFO very experienced Fernando Tennenbaum has been with ABI for 15 years already. He was previously CFO of ABI’s listed Brazilian subsidiary, AmBev (a business which accounts for 26% of ABI’s current market cap); Lucas Lira will become CFO of AmBev. Tennenbaum played a key role in the SAB Miller transaction, where he led the funding of the deal and managed the company’s debt profile. He also has experience in the Investor Relations role at AmBev, which should prove useful as outgoing CFO Dutra was very shareholder friendly, and we believe investors expect the high level of engagement from ABI management to continue. Other changes to the ExCo Felipe Dutra had also held the Chief Technology Officer role, which will now be taken up by David Almeida (a 22 year veteran of ABI) as Chief Strategy and Technology Officer. Almeida will lead various transformation initiatives in operational excellence and innovation. Data analytics is a key area for ABI, and will only become more important going forward. With David Almeida’s role change, a new Chief People Officer, Nelson Jamel (also a 22 year veteran), has been appointed.
Organic sales growth of 6.2% beat expectations of 5.1%. Volumes grew 2.1% vs consensus expectations of 1%, the best performance in over five years.
Anheuser-Busch InBev SA/NV
ABI’s 1Q’19 organic performance exceeded expectations; however, currency translation effects more than offset the strong performance. Organic sales growth of 5.9% beat expectations of 5.1% driven by rev/HL beats.
ABI’s 4Q’18 organic sales grew 5.3%, beating consensus by 70bps driven by stronger than expected performances in LatAm West, LatAm South and Asia Pac and robust growth in premium beers. Organic normalized EBITDA growth of 10% beat consensus on 7% while normalised EBIT also beat by 3.4%.
